On Dec. 18, the National City City Council heard an emergency item from its Successor Agency, which requested to borrow funds to meet payment demands from the state’s Department of Finance.

In a Dec. 14 letter from state department representative Steve Szalay, a $6.1-plus million payment from the Successor Agency’s Low and Moderate Income Housing Fund was demanded by Dec. 21.

The council unanimously voted against the request.

National City mayor Ron Morrison called the demand part of a “continued money grab” by the state.“Three months ago the state gave us three days to pay $4.2 million,” Morrison said. “…This is all getting to be just total insanity … it’s redevelopment this year, enterprise zones next year.”

Although the Agency contends it will experience a deficit in payment periods through December 2015, the Department maintains there should be sufficient funds to cover future obligations.

However, the agency says it needs those funds to meet future obligations. Excluding bond proceeds, the estimated total “cash on hand” in all combined funds of the Successor agency is $2.5 million.

The city’s West Side Infill Transit-Oriented Development project requires the agency provide $21 million for the first phase and $15 million for the second phase of its affordable housing project due in Recognized Obligation Payment Schedule periods covering fiscal year 2012-13.

City manager Leslie Deese said the city simply couldn’t afford to loan the approximate $4 million, which would take more than half of its existing reserves.

“That’s not really what it’s there for,” Deese said. “We need that money for emergency situations.”

City staff said that given the fiscal uncertainty with federal and state funding, the city must maintain adequate reserves in order to provide core services, including emergency response, health and safety programs and infrastructure operations.

In addition, Deese said the city’s general fund contingency reserve policy was created to withstand local or national financial emergencies, including disasters, revenue shortfalls or other problems.

With current budgeted operating expenses at nearly $37,500,000 the city’s reserve is just over $7 million or 18.8 percent of a single year’s general fund operating expenditures and below the minimum contingency reserve of 25 percent.

The Department of Finance lined out consequences to not complying, which included offsets to other taxing entity’s sales and use tax allocation or to its property tax allocation. In addition, it would prevent the agency from receiving a finding of completion from the department, prohibiting the agency from taking advantage of ways to address potential short-term cash flow issues.

Morrison said that while the city has become more efficient in hard times, the state and government has not.

“I know they claim they’ve found some cases of abuse (with redevelopment) in California … I’d be glad to go toe to toe with them and show them there are many more abuses taking place at the state level,” Morrison said.

In the interim, city staff is doing what it can.

“We have requested a payment plan from the DOF and have not heard back,” Raulston said. “We also continue to object to the payment because they are not recognizing a real obligation which is the contract to build the (infill) project.”

The city has held two meet and confers with the state to discuss its projects as well as the money dedicated for specific projects.

“The purpose is to talk about the uniqueness of National City’s position and where we are and the criticalness of use to get determination on our bond funds,” Deese said.

The city council voted July 19, 2011 to opt into a costly program to keep redevelopment alive including projects and programs such as blight control, code enforcement and affordable housing after Gov. Jerry Brown eliminated 400-plus agencies.

Shortly thereafter, the League of California Cities and the California Redevelopment Association filed a lawsuit against the state to overturn the two bills passed in June.

A Jan. 14 meeting has been scheduled with assemblyman Ben Hueso, Morrison, councilwoman Mona Rios, Raulston, Deese, city attorney Claudia Silva, Department of Finance and government staff, after which a significant update will be provided at the successor agency meeting on Jan. 15.